A simple guide to the many types of retirement accounts

Saving for retirement is a journey, and every path is different. You may be saving in a traditional employer-sponsored retirement plan, like a 401(k), but depending on your interests, needs and retirement dreams, you may want to expand beyond that one method of saving. In fact, Thrivent's Retirement Readiness Survey¹ found that among those nearing retirement, 42% intend to rely on a mix of assets such as a 401(k), personal savings, Social Security benefits and individual retirement accounts (IRAs).

The different types of retirement accounts may feel like an alphabet soup of names, benefits and eligibility. If you're at the point in life where you are starting to envision what retirement may look like for you, learning about the savings options available can help you decide if you need to diversify your savings options.

We'll discuss:

• 401(k)s
• 403(b)s
• 457(b)s
• SEP IRAs
• SIMPLE IRAs
• Pensions
• Solo 401(k)s for self-employed
• Traditional IRAs
• Roth IRAs
• Catch-up contributions if you are 50 or older

• 2024 contribution limit: $23,000
• 2024 catch-up limit: $7,500

A 401(k) is one of the most common types of employer-sponsored retirement plans. If your employer offers a 401(k), you can contribute pretax dollars to it, and your investments may grow tax-deferred until you retire. However, because your employer determines the investment options available, you may be limited in your choices.

A 401(k) is a tax-later account, meaning your contributions reduce your taxable income during your contribution or working years. And any investment earnings aren't taxed. Instead, you pay taxes once you withdraw funds. You can begin withdrawing from your 401(k) penalty-free at 59½, and you must take required minimum distributions (RMDs), the minimum amount of money you must withdraw from a tax-deferred retirement plan after you reach a certain age. However, you may be able to delay RMDs if you meet certain requirements (you are still working, not a 5% owner of the business, and the plan document allows.)

Your employer also may offer a Roth 401(k). It works much like a traditional 401(k) in that it's funded with contributions from your paycheck and offers a pre-selected list of investment options. But unlike a traditional 401(k), which is funded with pre-tax dollars, the contributions you make to a Roth 401(k) already have been taxed so no additional tax liability will be incurred down the road (given you've met withdrawal eligibility requirements). Earnings can be withdrawn tax free if you make a qualified distribution.²

• 2024 contribution limit: $23,000
• 2024 catch-up limit: $7,500

A 403(b) plan is another one of the more common types of employer-sponsored retirement plans available. This plan is for public sector employees and those who work for 503(c)(3) organizations, including religious, charitable or educational institutions.

Similar to a 401(k), you can contribute to your retirement investments through payroll deductions that lowers you taxable income. With a traditional 403(b), your money goes in pretax, and your investment earnings can grow tax-deferred until it's time to withdraw the funds. Typically, 403(b) plans are limited to annuities or mutual funds investments. 403(b)s will require you to take RMDs at a specific age unless you meet certain stipulations (you are still working and the plan document allows a delay).

You may have the option for a Roth 403(b). In this plan, you make contributions using after-tax dollars, but you don't pay taxes on withdrawals of those contributions as long as you've met withdrawal eligibility requirements. Earnings are also eligible to be withdrawn tax-free.² If you believe you may be in a higher tax bracket in your retirement, this may be an option to discuss with your financial advisor and tax professionals.

• 2024 contribution limit: $23,000
• 2024 catch-up limit: $7,500

A 457(b) is another employer-sponsored retirement savings plan for those working in state and local governments. It works like a 401(k): You contribute pretax dollars directly to your plan, any earnings from investments grow tax-deferred and you pay taxes on withdrawals in the future. One difference from a 401(k) is you may withdraw funds from a 457(b) once you leave your company without facing early tax penalties—but you have to pay income taxes on the amount withdrawn. So it's wise to leave the funds in the account until retirement to benefit from compound interest. These types of plans will be subject to RMDs unless you are still working and the plan document allows a delay.

Some employers offer a Roth 457(b), which works similarly to Roth 403(b) plans where you contribute post-tax dollars. However, when it comes time to withdraw funds, you don't have to pay taxes on the contributions as long as you've met withdrawal eligibility requirements. Additionally, earnings are eligible to be withdrawn tax-free.² It may make sense if you're considering your potential income at retirement being in a higher tax bracket and are offered this plan.

• 2024 contribution limit: The lesser of $69,000 or 25% of your salary

With the Simplified Employee Pension (SEP) IRA, your employer will make contributions on your behalf to an IRA that’s established in your name. The contributions made on your behalf are generally a percentage of your compensation. With a SEP IRA, you will be able to choose the investment options that are right for you. Over time, the assets in your account benefit from tax-deferred growth.

As with a 401(k), you don't pay taxes until withdrawals begin. You can begin withdrawing penalty-free at 59½ and must take RMDs at a specific age.

The Secure Act 2.0 will now allow Roth SEP IRAs, which may function similarly to other Roth accounts. Check with your employer to see if they will offer one in the near future.

• 2024 contribution limit: $16,000
• 2024 catch-up limit: $3,500

Savings Incentive Match Plan for Employees (SIMPLE) IRAs work in a similar way to 401(k)s. You can elect to defer your own salary and your employer makes contributions on your behalf. The assets have the opportunity to grow tax-deferred until you begin withdrawals. RMDs must be taken by a specific age.

The Secure Act 2.0 will now allow Roth SIMPLE IRAs, which may work like other Roth accounts. Check with your employer to see if they will offer one in the near future.

Though not as common today, some employers offer profit-sharing plans or company-provided pensions. Both of these are potential ways to get an income during retirement.

With a profit-sharing plan, the employer gives employees a share in company profits based on earnings (usually quarterly or annually). The company lays out what percentage of profits employees get and makes contributions to the plan. The IRS defines compensation rules for profit-sharing plans.

A pension is another possible way to generate retirement income. With a pension, employers contribute to investments that grow while the employee works. Once the employee retires, they get funds from their pension plan in one of two ways:

• Defined benefit pension. The employee receives a set monthly payment for life (employees also may choose a lump-sum payment).

• Defined contribution pension. The employer contributes to an investment account during the employee's working years, and upon retirement, the balance transfers to the employee.

• 2024 contribution limit: $23,000
• 2024 catch-up limit: $7,500

A self-employed person may want to explore a solo 401(k). It operates similarly to a traditional 401(k)—contributions are tax-deferred, earnings can grow tax-free and withdrawals are taxed.

However, a solo 401(k) is for business owners (with no employees) and their spouses. It allows you to contribute as both an employee and an employer. The total combined limit that you and your business can contribute in 2024 is $69,000 ($76,500 if you're over 50).

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The ultimate guide to retirement savings by age

Each decade of your working life serves as a guide to navigating the nuances of creating a strong retirement plan. We explore retirement planning in 30s, 40s, 50s and 60s.

See the guideposts

• 2024 contribution limit: $7,000
• 2024 catch-up limit: $1,000

An individual retirement account (IRA) is a qualified retirement plan available. IRAs are a popular option if you don't have access to an employer-sponsored plan or want to invest a little more toward your future.

With a traditional IRA, you may choose a variety of investments, from stocks and bonds to mutual funds, because they are obtained directly through a financial institution instead of offered through an employer-sponsored plan. You make contributions to a traditional IRA and pay taxes upon withdrawing funds. Those contributions may be tax deductible. Traditional IRAs will require you to take RMDs at a specific age.

• If you make less than the maximum modified adjusted gross income (MAGI) listed, you can make a full tax deduction of contributions.
• If you make between the MAGIs listed, you can make a partial deduction of contributions.
• If you make equal to or more than the maximum MAGI listed, you can't deduct contributions.

A traditional IRA may be right for you if you:

• Or your spouse have earned income.
• Believe you may be in the same or a lower tax bracket when you retire.
• Want an immediate tax deduction.³
• Are willing to wait until retirement to access funds (additional taxes and penalties will apply unless you meet IRA exception criteria).

• 2024 contribution limit: $7,000
• 2024 catch-up limit: $1,000

A Roth IRA is similar to a traditional IRA in that it's a qualified retirement plan that isn't employer-sponsored and allows you to choose from various investment options. Roth IRAs are funded with after-tax dollars and earnings grow tax-deferred.

Unlike traditional IRAs, Roth IRAs have income limits to participate.

• If you make between the maximum MAGI listed, you can contribute but it will be a reduced amount.
• If you make equal to or more than the maximum limit listed, you can't contribute anything to a Roth IRA.

A Roth IRA may be right for you if you:

• Or your spouse have earned income within the income limits.
• Believe you'll be in a higher tax bracket in retirement.
• Want tax-free distributions in the future.
• Want the option to take out the money you've contributed before age 59½ without penalties.⁴
  

Catch-up contributions are an option available on many retirement plans if you are 50 or order. They allow you to add additional dollars beyond the annual contribution limit of your retirement plan(s) to give your savings an extra boost before retirement. The contribution and catch-up contribution limits vary greatly by the type of retirement plan. You can find the details applicable to your retirement plan below:

The SECURE Act 2.0 added a special catch-up for workers who are aged 60 to 63 starting in 2025. For 401(k)s and 403(b)s, they can contribute either $10,000 or 150% of the standard 2024 catch-up amount, whichever is more. Beginning in 2026, the $10,000 amount will be indexed for inflation.

It's common to have doubts, fears and questions about available retirement plans. You may even wonder if you're doing enough to save for your ideal retirement. Getting personalized help along the way can make a big difference. Start by checking your progress by using a retirement income planning calculator, then consider meeting with a financial advisor.

Working with a financial advisor means you have a partner who understands your financial situation and dreams. They can answer questions, guide you through turbulent times and work with you to create a retirement strategy to support your needs.